Stablecoins, Global Digital Currency and the Future of the International Monetary System By Jeremy Allaire, Co-Founder, Chairman and CEO of Circle January 2020

2 Introduction 12 From Single Currency Stablecoins to Global Digital Currencies 3 The Rise of the Internet The Need for Global Stablecoin The Internet and Globalization 14 4 Standards and Governance The Limits of Our Legal, Political 6 A Technology Roadmap and Economic Systems in 15 for Global Stablecoins the Age of the Internet A Policy and Governance Public Blockchains and 17 7 Roadmap for Global Stablecoins Economic Transformation 19 Summary 9 The Rise of Stablecoins 20 About the Author 11 Global Political and Economic Implications of Stablecoins Introduction On September 15, 2008, Lehman Brothers filed for bankruptcy and the largest economic crisis in 79 years cascaded through the global financial system. Six weeks later, on October 31, 2008, the Bitcoin whitepaper was quietly published. Without fanfare, it introduced a groundbreaking new approach to creating a secure digital currency with no centralized authority using a new innovative technology: blockchains.

hese twin events in the fall of 2008 they chart a course forward for the global both triggered profound changes in financial system and digital currencies during the global financial system. The Great the next decade. In particular, the paper TRecession ushered in an unprecedented explores the opportunities and challenges extended period of accomodative monetary posed by “stablecoins” — cryptocurrencies policy. The invention of blockchains fueled that are backed by, or pegged to, central a decade of innovation in digital currencies. bank money. It proposes approaches to The impact of these changes have begun to governance and public-private partnerships converge and create an opportunity to forge that can help to unlock the transformative a new international monetary system that potential of stablecoins, including the eventual combines the strengths of global central bank development of a global digital currency. money with the power of public blockchains. Through such an effort, it should become It is timely that many of the world’s economic, possible to establish a new global economic political, financial and technology leaders are system that is more integrated, stable, secure convened this year at the World Economic and open to everyone in the world, ultimately Forum in Davos to explore these ideas. helping to increase wealth creation for all. More than ever, the Forum’s mandate to This paper attempts to catalyze new thinking embrace multi-stakeholder and public- on these issues and lays out key topics private initiatives is needed to collectively global policy makers should consider as improve the global economic system.

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 2 The Rise of the Internet he opportunities for global economic the community built out an open, global transformation are implicitly woven and decentralized public infrastructure together with the rise of the internet, that everyone could plug into. While that Twhich has brought billions together on a foundation has largely remained intact, billions common open infrastructure to interact, still do not yet have digital access, and in some communicate and conduct commerce. It is parts of the world, the liberal and democratic likely that the new international monetary system we seek to build will implicitly mirror It is likely that the new many fundamental features of the base layers international monetary of the internet. The internet is inherently system we seek to build global and borderless, and is built on a technology architecture that is fundamentally will implicitly mirror many permissionless and decentralized — it fundamental features of the empowers individuals and organizations to base layers of the internet. connect freely, and is not run or controlled principles of open access have been by any single government or corporation. curtailed by varying levels of state control. Twenty five years ago when the first These open networks and standards have commercial phases of the internet were brought us so much of the internet we know unfolding, it was not apparent to most and love today — instant and free access to people what form and shape this new “global nearly all of the world’s knowledge, instant and information superhighway” would take. free and high quality communications with any For many countries and large media and person, anywhere, and an incredible array of communications companies, they assumed new modes of service delivery and commerce it would be business as usual — they would only made possible by the internet. It has also build out their own closed off digital realms. brought global challenges — cyber warfare At the same time, a growing community of and hacking, digital election interference and computer scientists, cryptographers, hackers, propaganda machines, trolling, social isolation, and technology entrepreneurs saw the addiction issues, and increased surveillance power of open protocols, open standards, and loss of privacy, among other issues. free intellectual property and decentralized systems. Through sheer will and creativity,

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 3 As we explore the future of the international system and the existing internet both suffer monetary system, and investigate the potential from significant failures. A combination of of public blockchain networks, central bank new global policy and governance and new digital currencies and global stablecoins, it is technologies such as public blockchains important to keep in mind the power of the holds the potential to address and overcome internet and how it has already reshaped our failures and weaknesses in both domains. world. At the same time, the existing monetary

The Internet and Globalization he rise of the internet strongly with firms and content, they don’t think about correlates to accelerating globalization. where servers are located. Most consumers Fundamentally, the internet itself would never want to go back to a world Tknows no boundaries, and at its core it connects people everywhere equally. Increasing centralization of Individuals and firms connect and transact information and data with large more freely than ever before. Global commerce marketplaces such as Alibaba internet technology companies and Amazon make it possible for product has raised profound questions creators everywhere to reach precisely the and challenges around free right consumer with ease. With a few notable speech, privacy and civil rights. exceptions where censorship remains a where information and communications state prerogative, global information and and commerce were siloed into physical knowledge flows freely, acting as a fluid and geographies and mostly managed by powerful currency for increased globalization. governments or corporate monopolies. Increasingly, more and more people no longer Many of these changes have also brought think with the constraints of borders. The on a backlash, as policy and governance and concept of borders disappears as people societal norms and needs are increasingly browse and search the Web, use email and colliding with the impact of the internet. messaging apps, play games and buy and sell products online. When people search Increasing centralization of information and browse content globally and engage and data with large internet technology

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 4 companies has raised profound questions At the same time, the global monetary system and challenges around free speech, privacy has become more tightly interconnected and and civil rights. The inherently open and interdependent, increasingly strained and permissionless nature of the internet has with greater risks. In response to the global given rise to increasing amounts of private financial crisis, economic policy makers have data theft, and even disruption of physical maintained the most accomodative monetary infrastructure through cyber attacks. policy on record with central banks continuing to manage growth and inflation targets with more and more limited tools — money If the goal of our common global creation through the open market purchases platforms and infrastructure of government debt, and extremely low and is to advance the social and even negative interest rates. Central bankers economic opportunities of around the world have had to operate within all, we clearly have very far the constraints of national and regional to go and require significant fiscal mandates, in tight calibration with US evolution in our global systems monetary policy, which maintains hegemonic status. The ultimate outcome of these of economic organization. accommodative policies is still yet unknown; Increased globalization, with its inherent indeed, even the most brilliant economists, dislocation of labor and economic coordination asset managers and analysts can only and production, has led to dramatically speculate on how this accommodative policy changing economic conditions, with many can be safely exited without economic shocks. nations and people rising out of poverty, but If the goal of our common global platforms also with sharpening economic inequality in and infrastructure is to advance the even the most developed economies in the social and economic opportunities of world. And while globalization has overall all, we clearly have very far to go and driven broad-based economic growth, we require significant evolution in our global have also seen continued concentration of systems of economic organization. wealth and income with the ultra-wealthy, while billions of people do not yet even have even basic access to the global financial system.

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 5 The Limits of Our Legal, Political and Economic Systems in the Age of the Internet ll of this points to the increasing as the increasing violations of privacy and evidence that our legal, political security for both individuals and firms. and economic systems, which In today’s world, economic actors — both were almost entirely forged in eras A individuals and firms — interact globally, previous to the internet, must evolve moving between the open, decentralized to reflect our new global realities. software-mediated world of the internet One path is a path of internet balkanization and the legal and economic systems where — to attempt to impose the laws of our they are domiciled. While a person or firm existing nation-state system onto the internet; can send a digital asset or information to balkanizing information, communications anyone without regard for location, when it and commerce. Indeed, rising economic and comes to exchanging value or participating in cultural nationalism may lead towards such economic contracts, our systems fall back on balkanization, potentially setting back the our legacy legal and economic infrastructure. advances we have made towards building A simple transaction such as sharing or a more open, global and connected world. sending money between people becomes The other path is to re-think the fundamental cumbersome, slow and expensive. A slightly infrastructure and building blocks of social more involved economic arrangement — say and economic organization, to embrace a person conducting labor as a service for the inherent benefits and network effects a firm across the internet — not only faces of internet-driven globalization, and to friction in the actual exchange of value, build a new open, global technology but falls back on legal contracts that are infrastructure that advances our ability to interpreted and enforced by humans in courts safely undertake governance and economic in an entirely different part of the world. activity on the internet. Such a path would More involved economic arrangements, also seek to build an architecture that helps such as trade between firms, instantly to ameliorate many of the risks and negative inherit a labyrinth of legal, accounting and consequences of the open internet such taxation regimes requiring expensive and

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 6 specialized people, significant manual software based contracts, interpreted and processes, and often slow decision making. enforced by trustless, secure, transparent and audited computing networks. In such a world, As more and more organizations form people and firms could interact, coordinate with participants located in geographically and transact with each other as instantly and distributed locations, increasingly facilitated safely as we share content and information. by using the internet, our systems of corporate organization are colliding Economic systems built to support these with the massive edifice of existing new blockchain-enabled firms could reduce national legal and economic systems. frictions in trade and commerce, introduce and include more people in the global economic New forms of corporate organization are system, and enhance trust and accountability becoming possible, where ‘firms’ are formed in economic activity everywhere. Such out of contracts implemented in code, and changes require not only technological where the governance, treasury and economic transformation, but also adapting and activities of the firm are literally codified in transforming legal and economic systems.

Public Blockchains and Economic Transformation hile the internet has brought institutions sought to use the same open dramatic transformation in the networks to safely transact with each other, worlds of media, communications, participate in governance and accounting Wsoftware, computing and commerce, and has processes, or enter into and enforce financial deepened our global ties, its fundamental contracts. This is the backdrop from which infrastructure never contemplated its public blockchains have emerged. potential role as a foundation for social First pioneered with Bitcoin, who’s open governance and the monetary system. and permissionless blockchain created a The building block protocols of the internet secure, immutable and decentralized ledger made today’s internet possible, but never for the storage and exchange of value, new contemplated a world where people and generations of blockchains hold the promise of

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 7 providing a new layer of public infrastructure exchange and economic interaction. for governance and economic activity. Built on advancements in cryptography and security, public blockchains are also During the last 10 years, blockchains have adding a deeply needed layer of privacy emerged as potential building blocks for a new global financial system. Rather than being led and security to internet applications and by economic policy makers, in this arena the commerce, helping to address the escalating efforts have been led by computer scientists, risks and threats of cyber attacks. cryptographers, technology entrepreneurs, This infrastructure has the potential of and a deeply inspired global community providing a global public good that all people, committed to building a more open and inclusive financial system. These blockchain projects are still in their early days, but are ... industry and developers gaining momentum with increasing velocity are working intensely on and force as large nation states, big tech next-generation blockchains companies, and the broader crypto community that can scale to support begin to deliver technologies for digital money billions of users with greater that will reshape the international monetary reliability and security. system in exciting and unpredictable ways. firms and nations can build on for governance Public blockchains such as Ethereum and and economic activity. In the same manner many of its competitors represent a new that no corporation or government controls kind of “economic operating system for the the world wide web or internet email, we internet”. This new public infrastructure is need to ensure that no country or private designed to provide an open and immutable corporation controls public blockchains. system of record-keeping, transaction processing and computation. Public With blockchains such as Ethereum, it became blockchains are purpose-built for “Fiduciary possible to represent important records Trust Applications”, designed to execute and and assets in a digital form, and to codify, enforce applications that allow for counter- literally, the rules for their exchange and parties to enter into transactions without use through ‘smart contracts’. While such relying on centralized intermediaries, with technologies have provided a powerful proof near perfect audibility and verifiability. of concept for financial applications used by Public blockchains will scale to support millions of people, industry and developers new systems of voting, governance, value are working intensely on next-generation

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 8 blockchains that can scale to support billions entirely digital representations of either of users with greater reliability and security. fiat-pegged or fiat-backed central bank money that can be used and exchanged The technical capabilities of public over the open internet in the same manner blockchains such as Ethereum have also that we can exchange digital content and given rise to the world of global stablecoins; information around the world today.

The Rise of Stablecoins Initially created for use over the internet, and the ability to integrate and use such currencies within cryptocurrency traders who ‘smart contracts’, allowing for powerful were seeking a stable-value innovations in the delivery and accessibility crypto asset for trading and of financial services. They also inherit some of the risks of cryptocurrencies, such hedging positions on trading as financial crime and money laundering exchanges, stablecoins risk and consumer protection risk through irrevocable loss of funds. Also, because have rapidly emerged as they depend on asset-backing, they have one of the most important the potential to introduce safety and foundational components and soundness risks both from their issuers and even to the broader banking system. ideas in blockchain-based The vast majority of stablecoins that have financial infrastructure. been introduced are issued and tightly controlled by single private companies. nlike proposed Central Bank Digital A proliferation of private and competitive Currencies (CBDC), most stablecoins stablecoins seems unlikely to lead to the are designed to operate on public kinds of standards and governance that Uor semi-public blockchains, inheriting can allow this innovation to flourish and many of the most powerful attributes of become widely accepted around the world. cryptocurrencies — open, global, interoperable

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 9 n 2019, new stablecoin initiatives While today the dominant use-case for launched with the goal of establishing global stablecoins is as a fiat currency technology, self-governance and a substitute in crypto trading markets, efforts Iconsortia approach to global stablecoins. such as the CENTRE Consortium and the The CENTRE Consortium and its USD Coin Libra Association have been designed (USDC) stablecoin sought to build multi-stakeholder consortia that would lead to robust and widely adopted global stablecoins.

Such consortium provide several benefits:

✓ No single company controls the stablecoin.

✓ There are clearly established rules around compliance with regulatory frameworks.

✓ They establish a clear model for the safekeeping of the reserve assets, including attestation frameworks that are transparent to the world.

✓ They provide open source technology that a broad community of developers and stakeholders can contribute to. with much broader use-cases in mind. ✓ Most importantly, they ensure that These consortium aim to provide open and there is a common and fungible digital interoperable global payment and settlement currency unit that can eventually be rails that can reach hundreds of millions issued and redeemed by hundreds of to billions of consumers and ultimately companies from all around the world. allow for payments and value exchange to become fundamental building blocks for applications and commerce on the internet.

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 10 Global Political and Economic Implications of Stablecoins lobal stablecoins are likely to have digital wallets on smartphones become a profound impact on international self-sovereign personal bank accounts. political and economic affairs. We are Even more profound, with non-custodial rapidly moving towards a world of borderless G digital wallets, consumers can secure and money and value exchange, where any person store their digital money using a passphrase with an internet connected device will be (what is often referred to as a ‘seed phrase’) able to exchange value with any other person which only they know and memorize, instantly, securely and at near zero cost. effectively ensuring that access to their Digital money in the form of stablecoins funds is possible from anywhere so long as can be used everywhere the internet can they can remember their passphrase. The reach, rendering obsolete notions such use of “brain wallets” provides individuals as cross-border payments, while raising with incredible liberty, allowing refugees or enormous challenges and complexity for people fleeing persecution to secure their governments around the enforcement wealth without fear of losing access to an of their fiscal and monetary policy. account or device; it also increases the risks of money laundering and tax evasion. Cryptocurrencies such as global stablecoins open up the possibility for any person with a mobile phone to simply download a digital Global stablecoins offer the currency wallet app on a smartphone, potential for a dramatic and connect and use the stablecoin of opening up of participation their choosing. In effect, this translates to in global economic activity. a world where consumers will be able to “vote with their smartphones” for which Capital controls and government treasury currency they want to adopt, and ultimately policies will battle with mobile apps and which global economic system and public blockchains for supremacy, possibly monetary policy they want to participate leading to harsh and restrictive measures in. Regional and international concerns by weaker currency regimes and increasing over “dollarization” will be amplified, as internet balkanization. However, just as users evade firewalls and IP restrictions

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 11 to access the free and open internet, they Programmable money combines the will more aggressively seek access to innovation of global stablecoins and smart the free and open internet economy and contracts — code representing economic thwart and bypass such control regimes. arrangements, executed and mediated on public blockchains — to allow for trust- Global stablecoins offer the potential for minimized economic arrangements. a dramatic opening up of participation in global economic activity. While much With money becoming just another focus and attention has been placed on form of data on the internet, and with the opportunity to reduce the cost and economic contract execution over accessibility of global payments, the more public blockchains, we may witness an dramatic and significant opportunity is the unprecedented amount of creativity and realization of the idea of “programmable innovation in how finance and economic money”, which will allow individuals and firms activity takes place around the world. to much more easily and safely enter into economic arrangements over the internet.

From Single Currency Stablecoins to Global Digital Currencies ith a primary use in digital major reserve currencies such as Euro, asset trading markets and Yuan, Yen, Pound Sterling and so forth. as a digital dollar hedging As next-generation blockchains that instrument, it is not surprising that today’s W support greater scale and transaction stablecoins are dominated by assets throughput are deployed, the use of global denominated in or backed-by US dollars. stablecoins for everyday payments and However, with advancements in public settlement will proliferate. Stablecoins blockchain infrastructure and growth in for G20 currencies will emerge to meet stablecoin technology and governance these payments use-cases and will lay the consortia such as CENTRE, there is likely foundation for much broader adoption of to be growth and proliferation of more fiat- crypto currencies in everyday commerce. backed stablecoins representing other

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 12 At the same time, the inherently global nature of stablecoins will continue to drive the world towards greater standardization and integration. People and firms will be more easily able to store value and transact in their preferred reserve currency, which will increase pressures on monetary sovereignty and ultimately create the conditions for G20 nations to consider and ultimately support the development of a new global digital currency unit.

eanwhile, non-sovereign digital The combination of all of these trends currencies such as bitcoin are should create the necessary conditions for likely to continue to grow in value the establishment of a new global digital Mand usage, as they represent a new safe- currency, built from a basket of leading haven asset that is independent of central reserve currencies and non-sovereign digital bank money and their implicit inflationary currency units such as bitcoin. Such a global policies. In the coming decade, governments digital currency would be able to function and central banks themselves may begin across multiple public and private blockchains, to mine or accumulate reserve positions in and holds the promise of ushering in a new bitcoin, much as they have been increasing international monetary system built on digital their positions in gold over the past decade. currency and blockchain technology.

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 13 The Need for Global Stablecoin Standards and Governance hile governments and regulators starting by introducing the idea of a new global begin to explore the implications basket currency, the Libra Reserve. Given the of stablecoins, private-sector scale of many of the private companies behind Wactors are also moving forward at an the Libra Association, there is understable accelerating pace to build standards and governance models for the issuance and The CENTRE stablecoin management of global stablecoins. smart contracts and Industry and financial market participants USD Coin (USDC) are being will benefit from common standards for integrated into hundreds stablecoins. Efforts such as the CENTRE of third-party solutions. Consortium and the Libra Association are initial takes on how to govern stablecoins, concern from governments about the providing both regulators and market introduction of a new global currency unit that participants with open source technologies could usurp national monetary sovereignty. and common standards that multiple At this point, it is unclear if the Libra project industry participants can adopt, standardized will go forward as originally conceived, or compliance policies, and reserve management if they too will shift towards a model more and accounting and audit functions that similar to the CENTRE Consortium and begin ensure the safety and soundness of the with single reserve currency stablecoins. assets that back the stablecoins. Some of the benefits of building on open New stablecoin consortiums are taking standards and consortium-based governance different approaches. The CENTRE Consortium are already emerging. For example, the is starting with fiat-denominated stablecoins CENTRE stablecoin smart contracts and for major reserve currencies, starting with the USD Coin (USDC) are being integrated into US dollar, and with a roadmap to add more hundreds of third-party solutions, spanning G10 reserve currencies in the coming years. wallets and custody solutions, trading On the other hand, the Libra Association is markets, savings and lending, payments, games and trade finance applications.

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 14 A Technology Roadmap for Global Stablecoins Today’s stablecoins are Blockchain 3.0 adequate for trading and First generation blockchain technologies such as Bitcoin were aimed at solving a settlement use cases, but narrower set of use-cases (e.g. in the case are limited by the scalability of Bitcoin, providing a privacy-focused and privacy features of digital cash with a sound monetary policy). Bitcoin itself continues to evolve to support existing blockchains. To improved privacy and security as well drive mass market adoption as technologies such as Lightening that aim to support greater scalability and of global stablecoins from transaction throughput for Bitcoin. a technology perspective, Many technologists and entrepreneurs joined stablecoins will need to build the crypto ecosystem inspired by the broader on next generation blockchains ideas of smart contracts and programmable money, and the idea of tokenization — that while simultaneously one could represent existing assets as creating and fostering digital assets which could then be traded, open technical standards exchanged and incorporated into ‘smart contracts’ in powerful ways. These ideas processes that welcome led to the development of 2nd generation technical contributions from blockchains such as Ethereum, which provide stakeholders globally. a more general purpose infrastructure for the development of decentralized applications and finance. Technologies such as Ethereum also gave rise to stablecoins, as it became more feasible to represent fiat currency as a digital asset on a public blockchain network.

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 15 However, it is widely acknowledged that technology is a national priority. It seems 2nd generation blockchains are limited in likely that government developed and their capacity to scale — both in terms of administered permissioned blockchains the amount of transactions they can support will emerge in markets around the world. and the volume of users and user activity. However, the social and economic There are also limitations in terms of the breakthrough of public blockchains, wherein sophistication of programs and applications the infrastructure is available as a public that can be developed and deployed good, open to individuals, firms and nations on these blockchains, and the need for on equal terms, continues to draw the energy of leading developers, computer Such technical advances can scientists and crypto industry participants. help to usher in the mainstream Breakthroughs and broad deployment of adoption of global stablecoins, 3rd generation blockchains is likely over making it possible for billions the course of the next couple of years. of people with smartphones to Such technical advances can help to usher access this new architecture in the mainstream adoption of global for global finance. stablecoins, making it possible for billions of people with smartphones to access continued improvement in the privacy this new architecture for global finance. and security models of these networks. There are now dozens of competing Standards Processes and projects aiming to provide 3rd generation Harnessing Developer blockchain infrastructure. Ethereum itself Communities is going through a metamorphosis in the While the advent of 3rd generation coming year with the introduction of Etherum blockchain technologies is a prerequisite to 2.0, which seeks to address many of these mainstream adoption of global stablecoins, challenges. Many other new blockchain it is also crucial that stablecoin protocols and efforts are vying for developer attention. technologies are built as open standards that everyone in the world can participate in. There are also nation-state driven industrial policies emerging for the development Early and ongoing advances in internet of national blockchain infrastructure, infrastructure have relied upon both most notably in China, where President formal and informal technical standards Xi Jinping has declared that blockchain governance processes. These include

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 16 formal standards bodies such as the World the formation of technology standards Wide Web Consortium and the Internet organizations that foster active participation, Engineering Task Force, as well as informal peer review and the development and standards bodies organized as open source release of open source technology. One communities such as the Linux Foundation. such effort is in its early formation with the Enterprise technologies such as Java, for CENTRE Consortium, where new technical example, have been governed through the working groups are being formed to Java Community Process, a collaboration facilitate the development of the CENTRE of academics, independent developers stablecoin standards. Similarly, the LIbra and leading enterprise technology firms. Association seeks to create a member- governed technology development The technology infrastructure of global process for the Libra Blockchain. stablecoins will be best served through

A Policy and Governance Roadmap for Global Stablecoins nlike many other areas of the internet, Public Private Partnership the development of global stablecoins used on public blockchains requires Approaches While there has been a great deal of attention significant coordination in our global multi- U put towards the idea of Central Bank Digital stakeholder monetary system. Open source Currencies (CBDC), an emerging idea is technology communities, private sector actors, gaining currency with both industry and national governments and central banks and economic policy makers, and that is the idea global supra-national financial policy bodies of Hybrid CBDC. In this formulation, public must come together to collaborate and build sector actors, including both central banks this new international monetary system. and national financial regulators, would work closely with private sector actors to supervise and ultimately license stablecoin payment network systems as well as individual firms who would mint stablecoins backed by central

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 17 bank reserve deposits. This “Hybrid CBDC” model allows the private sector, including The Role of Central Banks and the broader open technical development Global Financial Regulators community, to drive forward with technology With a Hybrid CDBC model, central banks and business model innovation, while continue to assert their primacy in managing also ensuring that such global stablecoin their national or regional monetary policy, systems meet a reasonable standard for while also paving the way for new market compliance and safety and soundness. participants and financial technology firms to drive global innovation in the infrastructure As articulated earlier, the development of that supports digital money and financial industry consortium and standards efforts such services innovation using blockchains. as CENTRE potentially create a foundation for robust public private collaboration. Through Meanwhile, the adoption of blockchain- strong self-governance, transparency and based digital money ultimately provides reporting, such consortiums give regulators central banks with more powerful tools for and policy makers an organized forum for transmitting policy and regulatory objectives Ultimately, the development of to industry and market participants, while also enabling private sector innovation standards for the supervision to advance at a pace commensurate of global stablecoins and with technology and the marketplace. stablecoin consortium requires a coordinated policy Consortiums such as CENTRE are being response at the global level. designed to scale to a global community of participants, and to enable the creation of monetary policy transmission, monetary stablecoins representing the world’s leading and risk supervision, and can lead to more reserve currencies. Central banks and policy effective enforcement of AML/CFT policies. makers from these regions can collaborate with each other and the consortium to Given the significant changes made possible ensure that the standards and policies with public blockchains and global stablecoins, developed are consistent on a global basis. central banks must be ready and able to embrace significant new models for how the financial system will operate, and ultimately collaborate with national lawmakers to define new kinds of banking charters that embrace the financial firms of the future.

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 18 Ultimately, the development of standards Such coordination on policy and regulatory for the supervision of global stablecoins and matters will take time and patience, and also stablecoin consortium requires a coordinated requires that major central banks and policy policy response at the global level. Global makers proactively engage with industry policy coordination through the Group of and stablecoin consortium as they bring Thirty, the G20 and Financial Stability Board, innovative technology and products to market. and through research and innovation initiatives from the International Monetary Fund and the Bank of International Settlements.

Summary oday more than at almost any time built for the digital age, creating a financial in history, the opportunities and system that is more inclusive, efficient, challenges facing the world require innovative, safe, secure and that helps create Tglobal governance built on multi-stakeholder wealth and value for all who participate. solutions that bring together public and These twin forces have unfolded in parallel private sectors and members of civil over the past ten years. With vision and society. Rising trade tensions and economic focus, the next ten years can converge the nationalism threatens the world economy, traditional monetary system with the world risking to upend the fragile post financial of cryptocurrency and public blockchains. crisis monetary system. Meanwhile, disruptive Global stakeholders should step away from innovations such as global stablecoins short-term and nation-state specific thinking and public blockchains point us towards a and imagine what can be built for the new architecture for the global economy economic benefit of everyone, everywhere.

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 19 About the Author eremy Allaire is Co-Founder, Chairman millions of consumers served, and multiple and CEO of Circle, a global financial successful public offerings on NASDAQ. technology firm that enables He has also provided expert testimony on Jbusinesses of all sizes to harness the power cryptocurrencies and digital assets before of stablecoins and public blockchains for US Senate Committee on Homeland Security payments and commerce worldwide. & Government Affairs, US Senate Banking Committee, and he has been named to Circle is the pioneer of the fastest growing the International Monetary Fund (IMF) fiat-currency backed stablecoin, USD Coin. High-Level Advisory Group on FinTech. Circle was founded in 2013 and is backed by $250 million from investors including Mr. Allaire provides perspective and policy Jim Breyer (Facebook), IDG Capital (Baidu, recommendations at the highest levels Tencent), General Catalyst (Airbnb, Stripe), inside financial bodies across the US, UK, Accel Partners, and Bitmain, with offices Europe and Asia, and frequently participates in Boston, New York, Dublin and London. in international forums focused on the Mr. Allaire previously co-founded and led future of the international monetary multiple global internet technology companies and economic system. with thousands of employees, hundreds of

Jeremy Allaire Co-Founder, Chairman and CEO of Circle

CIRCLE INTERNET FINANCIAL Stablecoins, Global Digital Currency and the Future of the International Monetary System 20